(Updates with U.N. condemnation, paragraphs 5-7)

By Sahal Abdulle

MOGADISHU, March 13 (Reuters) - Mortar rounds crashed into Somalia's presidential palace on Tuesday hours after President Abdullahi Yusuf flew back into the chaotic coastal capital Mogadishu.

Yusuf's interim government voted overwhelmingly on Monday to move to the city, despite near-daily insurgent attacks blamed on an Islamist movement defeated two months ago.

"We saw several mortars flying over us towards the palace," said one woman who lives nearby and asked not to be named.

Residents said government troops and their Ethiopian allies based at the hilltop Villa Somalia compound immediately returned fire with artillery guns. At least three areas in the city were said to have been hit, but details were scarce.

In New York the U.N. Security Council condemned the violence in the Horn of Africa country.

South Africa's U.N. Ambassador Dumisani Kumalo, the current council president, said it condemned the attacks against an African Union force in Somalia and the leaders of the country's transitional institutions.

"The members of the council also express their great concern at the deteriorating humanitarian situation," he said.

In other violent incidents in Mogadishu on Tuesday, a remote controlled bomb -- the first known use of such a device in Somalia's insurgency -- destroyed the car of a city official, although it was unclear if he was in the vehicle at the time.

Police cordoned off the site of the blast and stopped journalists from viewing the wreckage.

Elsewhere, residents said two civilians were killed and three wounded when Ethiopian troops opened fire after their convoy was ambushed by gunmen.

Yusuf, who has been out of Mogadishu for about a month, returned to the capital earlier on Tuesday amid tight security.

His administration is anxious to impose its authority on the whole of the Horn of Africa country after being confined to the south central town of Baidoa since its creation in 2004.

Its Ethiopian allies are to make way for African Union troops who began arriving in Mogadishu last week. More than 1,000 Ugandans have landed, and been attacked at least twice.

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